9911796707
TMI Blog1998 (8) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ,620 after claiming deduction of Rs. 2,00,32,020 under s. 80HHC of the Act. The business of the assessee is importing rough diamond and after getting the rough diamonds cut and polished, exporting polished diamonds. The turnover of the assessee declared Rs. 1,274.67 lakhs consists of export turnover of 1,273.77 lakhs and local turnover of Rs. 90 lakhs. 3. The facts concerned with the main addition as projected in ground of appeal No. 1 are that before 1st March, 1992, the exchange rate of foreign currency was controlled by the Government through Reserve Bank of India (RBI) and accordingly the export proceeds and import payments were converted into rupee by the exchange rate fixed by the RBI. However, w.e.f. 1st March, 1992 the Government decided that 40 per cent of foreign exchange shall be purchased and sold at fixed rate and 60 per cent of foreign exchange shall be purchased and sold at market rate which resulted into partial convertibility of the rupee. With effect from 1st March, 1993, the Government introduced full convertibility of rupee. Accordingly 100 per cent foreign exchange was purchased and sold at market rate. On introduction of full convertibility of rupee the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed as business income. Accordingly the AO observed in the letter issued to the assessee that the entire 8 per cent premium received by the assessee cannot be treated as business income within the meaning of s. 28(iiia) and accordingly the assessee is not eligible for deduction under s. 80HHC in respect of this income. 6. In response to the above letter/show-cause notice the assessee filed a detailed reply, dt. 17th March, 1997, wherein it is contended that the receipt of 8 per cent premium come within the ambit of cl. (iiib) of s. 28 because s. 28 (iiib) states "any cash assistance (by whatever name called) received or receivable by any person against export under any scheme of the Government". Accordingly it was contended before the AO that the receipt of 8 per cent premium is eligible to deduction under s. 80HHC because cl. (baa) of Expln. to s. 80HHC requires to reduce the business profit by 90 per cent of such receipt covered under s. 28(iiib) and the export profit computed under s. 80HHC is required to be increased as per proviso to s. 80HHC by 90 per cent of such receipt in proportion to export turnover divided by total turnover. Alternatively it was submitted before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Government of full convertibility effected from 1st March, 1993, in respect of imports made prior thereto for which the payments had to be made at 100 per cent market rate, it is clearly business income of the assessee. It was further pleaded that the licences even purchased from open market cannot be held as investment as the validity period of the licence is only 12 months. The REP licence is issued against exports which can be sold or which can be utilised by the person who has acquired originally or the person who has purchased it has to utilise the licence before the validity period expires. Accordingly it was pleaded that the entire 8 per cent premium of Rs. 39,35,699 on licence purchased from open market and Rs. 5,93,200 on self-generated licence on full convertibility of rupee should be assessed as business income and not as income from other sources as held by the AO as well as the CIT(A). 10. Dilip Shivpuri, the learned Departmental Representative supported the order of the CIT(A) and submitted that the 8 per cent premium received by the assessee on sale of import licences is income from other sources and not income from business because anybody can purchase the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 28 of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits. However, the export profit calculated as per s. 80HHC(3) by taking business profit as above is required to be increased as per proviso to s. 80HHC(3). According to this proviso, if this receipt is considered to be of nature falling under cl. (iiia) to (iiic) the profit shall be reduced by 90 per cent under Expln. (baa) but the deduction under s. 80HHC shall be increased by 90 per cent of such receipts in proportion to export sale and total sale as per proviso to s. 80HHC(3). Now if we look at the case of the assessee in terms of the provisions of s. 80HHC it is seen that the assessee had received the premium not on sale of licence which was acquired from other person, but premium on licences acquired by way of either self-generation or by way of purchase from open market as compensation for loss on full convertibility. These licences were not surrendered but the imports were made and the payments at increased exchange rate for imports were also made. On purchase of licences from the open market it cannot be said that the licences now ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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